The causal relationship between insider ownership and market valuation is tested on a
database of the largest EU and US companies. Using a Granger causality test insider
ownership (measured by the fraction of closely held shares) is found to have a negative effect
on market valuation (measured as the simple Tobin's Q ratio). And market valuation is found
to have a negative effect on insider ownership. Consistent with an overall non-linear
relationship as hypothesised by Morck et al. (1988) and Stultz (1988), the negative effect
from insider ownership to performance is found to be significant only for companies with
high initial levels of insider ownership, but insignificant for companies with low initial
concentration levels. Furthermore, the effect on market valuation turns out to depend on
system affiliation: it is only significant in continental Europe where average insider
ownership is much higher than in the Anglo-American world (UK and US).